Companies like GM usually desire to pay pensions via a lump sum as this can make their balance sheet look better. Moreover, due to legislation going back to the Pension Protection Act of 2006 (that is now fully in effect), the cost of paying a lump sum for companies has been reduced.

Now the twist:

GM retirees that elect to continue the monthly pension method will now have their payments “administered” by The Prudential Insurance Company of America. Administered in this case has a special meaning; checks will come from Prudential and no longer receive the benefit of being covered and insured by the Pension Benefit Guaranty Corporation (PBGC), a U.S. Government Agency (www.PBGC.gov). Rather, annuity payments from Prudential will carry more limited guarantees from each state (For Michigan see www.milifega.org). Fortunately the insurance industry as a whole has been reliable in terms of paying benefits. In fact, Prudential has never missed paying an annuity payment. So, there are arguably less guarantees associated with payments from Prudential – but probably not enough to affect the decision in either direction.

What to do? General rules and rules of thumb just don’t work here. First, run the numbers (you are encouraged to consult with a financial planner and/or tax advisor) and then weigh the risks before deciding. We have been working with several clients over the last few weeks. Each situation is unique and we have come to different conclusions depending on their individual circumstances. If we can help you make an informed and prudent decision – one that has the potential to significantly impact (positively or negatively) your wealth for years to come - please feel free to call or email me.

The information has been obtained from sources considered to be reliable, but we do not guarantee that the foregoing material is accurate or complete. Any information is not a complete summary or statement of all available data necessary for making an investment decision and does not constitute a recommendation. Any opinions are those of Center for Financial Planning, Inc., and not necessarily those of RJFS or Raymond James

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